Oil Prices Remain Low Despite Conflict, Worrying Gulf Countries

The major oil-producing countries of the Middle East are beginning to indicate serious concern over the fact that prices remain stubbornly low despite the intensifying conflict between Israel and Hezbollah. Conflict anywhere in the region has historically been a force for upward pressure on prices, but this week prices for Brent Crude were hovering around $75 a barrel for November delivery, far below the levels many governments say they need to balance their budgets.

A political crisis in Libya has recently taken 400,000 barrels a day of that country's usual production off the world market, but this has not had much of an upward effect on prices either.

The IMF estimates that the largest country in the Gulf Cooperation Council, Saudi Arabia, needs a the price of a barrel of oil to be $96.20 in order to break even on its annual budget.

“At least until 2030, Saudi will have massive budgetary needs due to the need to demonstrate some significant outcome in key Vision 2030 projects and to prepare for and host big sporting and cultural events,” Middle East Institute scholar Li-Chen Sim told CNBC.

Other oil producers are having even bigger problems, with the IMF estimating that Iraq needs the price of oil to be almost $94 a barrel to balance its budget, while Kuwait needs a price of $83.5 per barrel and Bahrain and Algeria would need oil to sell at around $125.7 per barrel in order to receive enough revenue to pay all their bills.

An outlier in this situation is the United Arab Emirates, which is one of Israel's closest strategic allies in the region and which needs oil to sell at $64 a barrel in order to meet its budgetary requirements.